ABSTRACT
Introduction The neoliberal orthodoxy claims that, by adopting liberal policies and offering a favorable climate for business, peripheral countries will be able to attract investment and increase trade and thus, without much difficulty, integrate into the globalization process. It is also claimed that, in the long run, integration into the global economy would promote sustainable growth and better living standards for all. In the context of attempts to integrate peripheral economies into the world capitalist system, a significant role has been given to small and medium enterprises (SMEs). International organizations such as the Organization for Economic Co-operation and Development (OECD)1 and the European Union (EU)2 find SMEs “a key source of jobs, business dynamism and innovation.” They are expected to play a pivotal role in facilitating the transition toward a more efficient and competitive global market economy. The neoclassical theory assumes that, in a perfectly competitive market with atomistic firms, all firms in the same industry operate with a common production function. In this framework, in order to innovate, firms need to perform in nonperfect markets. Evolutionary theory, on the other hand, allows for enterprises to achieve competitiveness by enhancing their capabilities in production, investment and innovation (Özçelik and Taymaz 2004). Evolutionary theory considers innovative activities to be firm-specific. Asymmetries among firms in terms of innovative activities exist not because of monopolistic or oligopolistic market structures but because creating innovative capabilities is an evolutionary process generated by a dynamic and interactive learning process. In a competitive environment, each individual entrepreneur is compelled to innovate to be able to remain in business and achieve profits above the average rate. In this context, SMEs are considered more advantageous than large enterprises. Large enterprises cannot be as dynamic as SMEs because their size makes experimentation and adaptation more costly. In addition, according to the evolutionary theory, the entry of new enterprises and the exit of losers bring new capabilities into the economy, enhancing efficiency by reallocating resources to more productive activities. This process of “creative destruction” facilitates organizational, process and product innovations
(Acs 2003). The process of creative destruction is claimed to be inherent in the market economy and should not be hindered by government interventions. Public policies, in this context, should be limited to establishing social institutions that promote entrepreneurship. With reference to the experiences of developed economies, Acs (2003) suggests three categories of public policy to promote entrepreneurship in developing countries. First, there should be policies to facilitate entrepreneurship and free entry of firms to generate creative destruction, which would ultimately enhance innovative activities. Second, there should be policies to improve the management competence of SMEs and, third, there should be policies to create the enabling business environment that is required to foster the success and viability of enterprises. Governments are therefore advised not to intervene in the workings of the market but only to establish a business environment conducive to entrepreneurial activities. In this framework, the market environment is perceived as separate from power relations. However, in a globalizing world, the ways in which enterprises in the periphery gain access to the world markets and the extent of the benefits and/or risks they carry are increasingly governed by international trade networks established by a small number of transnational corporations located mostly in the core countries (Bair 2008; Haque 2007; Bair and Gereffi 2003: 165; Gereffi et al. 2001). The evolutionary approach also recognizes the problems faced by small enterprises in meeting the competitive requirements of large enterprises. Acs (2003: 30) offers three mechanisms by which small enterprises can be successful in the face of competition from larger enterprises.
